Europe Make Cyprus "Bail-In" Regime Continental Template

Turns out that for Europe, Cyprus was a "bail-in" template after all, and following an agreement reached early this morning, Europe now has a joint failed-bank resolution mechanism. Several hours ago, EU finance ministers announced that they had reached agreement on the principles governing the imposition of losses on creditors in bank 'bail ins'. Having already agreed to establish "depositor preference" in the pecking order of creditors at risk, the stumbling block to agreement was the availability of flexibility at the national level to complement the bail in with injections of funds from other sources. Under the compromise achieved overnight, once a bail in equivalent to 8% of total liabilities has been implemented, support from other sources can be used (up to 5% of total liabilities) with approval from Brussels.

So investors (i.e. yield chasers) and not taxpayers will foot the cost of bank bailouts going forward for a change? Maybe on paper: "From 2018, the so-called “bail-in” regime can force shareholders, bondholders and some depositors to contribute to the costs of bank failure. Insured deposits under €100,000 are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order." In reality, last night's agreement is the usual fluid melange of semi-rigid rules filled with loopholes designed to benefit large banks whose impairment may be detrimental to "systemic stability".

To wit, from the FT: "While a minimum bail-in amounting to 8 per cent of total liabilities is mandatory before resolution funds can be used, countries are given more leeway to shield certain creditors from losses in defined circumstances." In other words, here is the bail in regime... which we may decide to ignore under "defined circumstances."

Next, since the "package must be agreed with the European parliament, a process that could stretch until the end of 2013" we urge no breath holding, especially since it was in late 2012 that news of a joint European bank regulator was announced, and one year later this concept has crashed and burned. In fact the bail-in deal will "open debate on further stages of financial integration, including on establishing a central authority to shut down eurozone banks" and "Germany is strongly resisting centralising such important powers to shut down banks under existing treaties."

In other words, yet another European agreement that is at best worth the price of the paper it is printed on. In the meantime, if indeed some of the systemic European banks keel over and die - say Credit Lyonnaise, Natexis or Deutsche - the last thing that anyone will think about to avoid a systemic collapse will be impairing even more banks. As a reminder, these are the most undercapitalized banks in Europe as reported by Goldman yesterday:

But golf clap to Europe for finally admitting that reason and logic also apply to the most banana continent of all: after all, it took years of legislating to realize that the insolvency impairment waterfall, a concept rooted in logic and not in political BS, applies in Europe as it does everywhere else in the world too (except for the TBTFs in the US of course).

And all of the above, from a slightly less jaded perspective, via Reuters:

The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.

After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.

The deal is a boost for EU leaders, who meet later on Thursday in Brussels, and can show that they are finally getting to grips with the financial crisis that began in mid-2007 with the near collapse of Germany's IKB.

"For the first time, we agreed on a significant bail-in to shield taxpayers," said Dutch Finance Minister Jeroen Dijsselbloem, referring to the process in which shareholders and bondholders must bear the costs of restructuring first.

The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank's creditors.

"They can affect German savers just as well as they can affect any other investor in the world," German Finance Minister Wolfgang Schaeuble said after the meeting.

* * *

But thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.

The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of "executioner" as early as next week, officials said.

"The most important discussion has yet to start and that is how decisions on restructuring will be made," said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. "It's premature to say that Europe is getting its act together."

Many Europeans remain angry with bankers and the easy credit that helped create property bubbles in countries including Ireland and Spain, which then burst and plunged Europe into a recession from which it has yet to recover.

Exactly. And as more people have less to lose financially, they won't care about much of anything to do with tje banks or the government run by banks. And so as they did in the fall of Rome, the slaves open the gates for the barbarians to sack the empire. This is what the 1% fail to realize they have done to this country.

Here is a good 45 minute series on Roman economics and inflation. It is what is coming. Notice towards the end, no one even wated to be a Roman because there was no economic freedom. The population wanted out.

They've already taken people's deposits and turned it into worthless stock in Spain (Bankia) and Britain (Co-operative).

Of course the stock dropped like a rock (80 percent) before they were allowed to sell. Then dropped more once the selling began. Of course like anything else, some people were able to get out before the moratorium expired on the peasants.

“The Cypriot program is not a template, but measures are tailor-made to the very exceptional Cypriot situation,” according to the document, agreed yesterday by representatives of euro-zone finance ministries and intended as a guide for explaining Monday’s decision to the public. (March 27, 2013)

let them take the pain...stories of poor Cypriots who sold their house and got their money confictated doesnt make me cry....The prices of their houses are 5x higher then reality anyway, they generaly enjoyed 3-4x higher standards of living for the last decade instead of their poor shepardlike and tourist servants what they really should, now the bill has come, let them go bancrupt totaly, why only 8% why not everything? I dont have any money in the bank, i am not supporting banksters, whay shoud i support them through bailouts unvoluntarily?

you all hypocrites, imagine your libertarian paradise for a while, what protection does your grandma's savings have there, except her wits and wits of family?...well if someone stupid enough, he has to pay for that, stupidity is actualy very very expensive thing.

you all crying here for poor people, actualy those same very people are very very stupid, the wolves were here all the time, thats basic law of nature, that they have to eat meat, meat of the weak and poor. thats darwin in full beaty, week have to learn their lessons, so they become strong, either they do or they end up like wolf's supper.

i dont think i have to explain this to you as majority of you are getting your money from the very industry you cry about

btw we are in the midst of a greatest depression ever, THERE ARE LOSSES, someone wil have to foot the bill either way...The most just solution is to let it all go bancrupt, let the state go bancrupt, but that would mean, no jobs and pensions for bureaucrats, low pensions for old generation generaly either, savers would have to take a hit, massive lay offs in state owned, less massive in some private companies, maybe 50% of financial industries jobs would have to dissapear overnight.

Actualy scenarios like this happened in less developed countries several times a year, its only west that can't remeber anything like this, for for 60-70 years there was a massive debt scum being orchestrated by almost each and every western leader ever elected by.......well by people

I've talked to people until I'm blue in the face and gotten nowhere. I would look forward to the day when I can say I told you so, but when that day comes, getting credit for calling it, will be the least of our concerns.

Aug. 26, 2013: An announcement will be made "Because markets have recovered after a long hard journey from the financial crisis in 2007-2009, we are reducing FDIC insurance to $50,000 per depositor. Banks are much better capitalized now and risks to the system have receded."

August 30, 2013, a sign on the bank reads: Bank Holiday from August 31-Sept 3. Please be aware that fund availability will be limited for the foreseeable future.

correct, most don't realize that their boss or the company they work for has way more than 100k on their accounts. and yet... what is the option? insuring all deposits? this legend that this is even mathematically possible is one of the cornerstones of the Too Big Too Fail complex

and the bigger the company (and so the cash account), the easier for it's CFO to spread the cash on several banks

Apple, just to make an extreme point, has a very elaborate cash management that is practically a hedge fund & a small tax-haven banking system for itself

I'm happy to read that there is also some logic in the pecking order, as the article says "Insured deposits under €100,000 are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order." because it's small and medium companies that are at greatest risk, due to their size and so the size of their cash management

meanwhile I'm slightly puzzled (hope did not catch a virus from Ben Bernanke) from Tyler's comment "But golf clap to Europe for finally admitting that reason and logic also apply to the most banana continent of all: after all, it took years of legislating to realize that the insolvency impairment waterfall, a concept rooted in logic and not in political BS, applies in Europe as it does everywhere else in the world too (except for the TBTFs in the US of course)."

I don't get it - my little English might me failing me. What is exactly different in the US? What is this concept of "insolvency impairment waterfall"? I agree with Tyler that all this BS in europe was tedious at least and intellectually dishonest, but those three words chained together don't make a clear sense to me

I might be radical in this, but imho fiat fractional banking draws from a public good, i.e. public credit. banks under this system are priviledged and should act as custodians of this public credit. and after all, someone has to buy their shares, bring in deposit or bring assets to collaterize so that they can work - even in an "Glass Steagall" environment (to which we still haven't reverted). but all partecipants have to watch out and choose carefully with whom they want to bank - otherwise there is a sound reasons to get rid of the private sector and directly nationalize whole banking systems - the other way to solve TBTF

yes, I know, I already can read "it's not public credit, it's ponzi" - fine, agreed, then it's public ponzi. but you can't take the "public" out of it - and I miss the argument apt to convince majorities anywhere that "fractional" should be taken out of the equation

Some people suggest to go out and protest on the streets. OK. The thing which is different between now and let's say 50 years ago, is that police force has grown in such way, they are now the equivalent of a nation's army. I refer to (1) Boston chasing 19yo kid, (2) Portugal riots, (3) Brazil riots, (4) Turkey riots, (5) German riots and many others. Really, what is an ordinary family guy to do against these police robocops... I really admired this one guy in Turkey who just made a statement "not rioting" against this force, but just standing still and all other people doing the exact same thing. Well, what else can he do.

Some people suggest to go out and protest on the streets. OK. The thing which is different between now and let's say 50 years ago, is that police force has grown in such way, they are now the equivalent of a nation's army. I refer to (1) Boston chasing 19yo kid, (2) Portugal riots, (3) Brazil riots, (4) Turkey riots, (5) German riots and many others. Really, what is an ordinary family guy to do against these police robocops... I really admired this one guy in Turkey who just made a statement "not rioting" against this force, but just standing still and all other people doing the exact same thing. Well, what else can he do.

Part of the propaganda. I read the Bloomberg piece about this, it mentions "creditors", etc., but at no point DEPOSITORS (Reuters did). And actually this is how the muppets will understand this news : as a good one. I don't have much left in bank, but now I'm even considering about withdrawing.They say under 100k will be safe, I don't believe a word.

It's all about playing hot potato and not getting stuck with it. It's linked to the mentality that pushes for privatization of public resources.

So, the once-national bank was broken up into chunks and sold off for cheap to some insiders. Great for lawmakers, they can stop having to care or take the blame. They can point the finger and say "not us!". Great for their insider friends who dump piles of cash as "donations" and have an effortless "job" lined up once they are out of office. Afterall, profit profit profit. If the government makes a profit, it's charging too much. If it books a loss, then it's failing. Once it's in private hands, no one's job is at risk anymore. Sure, you can "vote" with your money I guess, but it's pretty useless. Government scandal becomes corporate scandal with a flick of the wrist. If there are profits now, it doesn't matter how crap the service is, hey look at it succeeding! So innovative to give less and charge more! Then when it all goes to shit, the government has to step in and piss away more money fixing it than they ever saw in "savings".

This is just the next in the line of ignoring the pile of shit they dumped in the first place. Oh? we simply CANNOT allow this bank to fail, afterall, that's why it's not nationalized and we have zero control over it. Tell you what, we've decided that instead of the government stepping in to fix it, now they can just take your fucking money directly. Afterall, we must shield the "taxpayers", of which the majority tend to be rich and they're the ones that bought the damn government in the first place.

@Tyler .... the charts show the "International Banks" and not for example local German Savings Banks ( Sparkassen und Volks- und Raifeisenbanken ).

The EU/ECB wanted to spread their Bank Regulator reach ( "Bankaufsicht" ) to the German "Sparkassen" a while ago, while the "Sparkassen" protested heavily, saying that their current system is more than adequate.

At least at the moment, nothing has changed regarding the "Volks- und Raiffeisenbanken" and the "Sparkassen". They still remain cooperative banking associations, which is the system they deem more adequate. No politician would dare to change that - at least not until the elections are over.

So when the "bail in" does not bail out the banks I bet you get a tax notice in the mail to pay up, right? I think so, this smells like a double tax buried deep in the bail in template. This resolution agreement probably reads like a Verizon terms of service agreement... the large print giveth and the small print taketh away.